Paul Ryan and the earned income tax credit

Michigan policymakers seem hell bent to eliminate the Earned Income Tax Credit (EITC). They already have reduced the credit from 20 to six percent to help pay for Governor Snyder’s big business tax cut. A huge tax increase on the working poor. Now the State House and Senate has voted to eliminate it entirely to help pay for road repair. (Rather than asking motorists to pay a user fee by raising the gas tax.)

What Michigan Republican policymakers are doing lies in stark contrast to Paul Ryan, Chair of US House Ways and Means Committee and Mitt Romney’s running mate, who is a strong advocate for expanding the EITC. Ryan’s approach of supporting the EITC has a long tradition amongst conservatives all the way back to Milton Friedman proposing a negative income tax in the 1960s.

Ryan’s approach to the EITC is detailed in his Expanding Opportunity in American report. Its worth checking out. In it Ryan writes: “One of the federal government’s most effective anti-poverty programs is the Earned Income Tax Credit (EITC). Low-income families can receive the credit as long as at least one member holds down a job. The consensus among independent economists is that in most cases the EITC makes low-income families more likely to work by increasing work’s rewards.” (Emphasis added.)

The report includes a chart on the power of the EITC in reducing poverty rates for households with children. Ranging from a reduction in poverty by 29.4 percent in married household with three children to 14.1 percent in single parent households with three children.

Ryan proposes expanding the EITC by increasing the credit for childless workers, lower the eligibility age and making the payments more frequent and automatic rather than once a year with a complex tax filing. He writes:

Because the EITC helps low-income households while encouraging work, this proposal would expand the credit for childless workers. Specifically, it would double the maximum credit, phase-in, and phase-out rates for childless adults, and it would lower the eligibility age for workers from 25 to 21, assuming they are not a dependent or qualifying child for another taxpayer. A larger EITC will help low-income workers trying to make ends meet and draw more people back into the labor force, promoting economic growth for everyone.(Emphasis added.)

I’m confident, if asked, nearly all Michigan policymakers would say they are in favor of lowering the poverty rate, encouraging work, drawing more people into the labor force and promoting economic growth. If that is the case they should be expanding, not eliminating, the EITC. As Ryan lays out, the evidence is that the EITC is a powerful lever to achieve all four.

Lou Glazer is President and co-founder of Michigan Future, Inc., a non-partisan, non-profit organization. Michigan Future’s mission is to be a source of new ideas on how Michigan can succeed as a world class community in a knowledge-driven economy. Its work is funded by Michigan foundations.